Growth fund returns continue to play second fiddle to the aggressive KiwiSaver schemes in terms of their returns, however, our recent analysis shows the gap is actually not as great as some may have expected.
The top handful of Growth funds would sit comfortably in the middle of the Aggressive fund universe based on our unique 'regular savings' model to calculate fund returns. When you think about the level of risk involved in these two categories, if you are not receiving a rate of return that is commensurate with the risk you are willing to accept, you have to question your investment strategy and possibly switch to a different fund or provider.
Our analysis shows nine out of 20 funds (so just under 50%) have returned in excess of 9% p.a.on a compound basis since April 2008, with the top five funds returning over 10% p.a.
On our regular savings basis, investing in the top funds you would be better off by $11,572*. While that may not seem a lot based on your ending fund value of $33,790* it is very significant when you realise that $22,818 is what you, your employer and the Government contributed. The average Growth fund earnings after-tax and after-fees is $5,330* more than the $6,242* you would have earned in a Default fund*. That's a staggering 85% more than if you'd stayed in a Default Fund.
Over the shorter three-year period a majority of the funds have exceeded double figures, which in turn is bolstering the longer term numbers. The same managers that are leading the pack in the short term are also leaders over the long term.
AMP, AON ANZ and Staples Rodway hold down the top spots and are extending their lead on the rest of the pack with some pretty solid three-year return numbers. Since April 2008 the average return is 8.5% p.a. after tax and fees, which coincidentally, is the same average return as we noted in last quarter's summary.
One fund that is not in the leading bunch on a long term basis, but is making progress over the short term is the Fisher Funds Two Growth Fund. This fund has returned more than 11% over the last three years based on our return calculation methodology and this is starting to boost what were fairly average returns, compared with their peers, over the long-term.
Another fund worthy of a mention and keeping an eye on for the future is the Generate Growth Fund. This is a relatively new entrant into the KiwiSaver space. While there is not a long-term track record, what the manager has been able to achieve in a short period of time is quite exceptional, in our opinion. As Aristotle said: "one swallow does not a summer make," but the early signs are promising and we will watching future progress of this manager with interest (no pun intended).
Those funds falling well off the pace compared with their peers are predominately those labelled as balanced funds. As we have mentioned in past KiwiSaver articles, the label on the fund can be deceiving and you have to look at the underlying asset allocation and fund manager mandates and assess where the fund fits on the risk spectrum. Background reading on our rationale for categorising funds can be found here.
Also keep in mind when reviewing the sector performance that in some cases the lack of exposure to shares will be a major contributor to a fund languishing below the competitors. If we were to see a reversal in stock market performance these bottom dwellers could start to rise up the rankings.
Here are the full comparison as at December 30, 2014 for Growth Funds.
| GrowthFunds |
Cumulative
contributions
(EE, ER, Govt)
|
+ Cum net gains
after all tax, fees
|
Effective
cum return
|
= Ending value
in your account
|
Effective
last 3 yr
return % p.a.
|
|||
| since April 2008 | X | Y | Z | |||||
| to December 2014 |
$
|
% p.a.
|
$
|
|||||
| AMP ANZ Default Balanced | G | B | G |
22,218
|
12,145
|
10.5%
|
34,363
|
12.1%
|
| ANZ OneAnswer Balanced Growth | G | G | G |
22,218
|
11,854
|
10.3%
|
34,072
|
12.8%
|
| Aon Russell LifePoints Growth | G | G | G |
22,218
|
11,730
|
10.2%
|
33,948
|
12.3%
|
| Staples Rodway Balanced | G | B | G |
22,218
|
11,716
|
10.2%
|
33,934
|
12.3%
|
| ANZ Balanced Growth | G | G | G |
22,218
|
11,687
|
10.2%
|
33,904
|
12.7%
|
| Aon Russell LifePoints 2035 | G | G | G |
22,218
|
11,171
|
9.8%
|
33,389
|
11.6%
|
| Aon Russell LifePoints Balanced | G | B | B |
22,218
|
10,960
|
9.6%
|
33,178
|
11.1%
|
| ANZ Default Balanced Growth | G | G | G |
22,218
|
10,777
|
9.5%
|
32,995
|
11.7%
|
| Aon ANZ Default Balanced | G | B | B |
22,218
|
10,583
|
9.3%
|
32,801
|
10.7%
|
| Fisher Funds Two Growth | G | G | G |
22,218
|
10,109
|
8.9%
|
32,327
|
11.3%
|
| Mercer SuperTrust Growth | G | G | A |
22,218
|
9,716
|
8.6%
|
31,934
|
10.8%
|
| ASB Balanced | G | B | B |
22,218
|
9,690
|
8.6%
|
31,908
|
10.3%
|
| Westpac Balanced | G | B | B |
22,218
|
9,480
|
8.4%
|
31,698
|
10.3%
|
| Mercer SuperTrust Active Balanced | G | G | B |
22,218
|
9,108
|
8.1%
|
31,326
|
9.3%
|
| AMP Balanced | G | B | B |
22,218
|
8,531
|
7.6%
|
30,749
|
8.5%
|
| Mercer Balanced | G | G | G |
22,218
|
8,478
|
7.6%
|
30,696
|
8.6%
|
| SmartKiwi Balanced | G | B | B |
22,218
|
7,568
|
6.8%
|
29,786
|
7.7%
|
| Craigs Balanced SRI | G | B |
22,218
|
7,565
|
6.8%
|
29,783
|
8.8%
|
|
| Craigs Growth | G | G |
22,218
|
7,277
|
6.5%
|
29,494
|
8.2%
|
|
| Craigs Balanced | G | B |
22,218
|
7,118
|
6.4%
|
29,336
|
7.6%
|
|
| --------------- | ||||||||
| Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition | ||||||||
| G = Growth, B = Balanced, A = Aggressive | ||||||||
The following growth funds have not been going long enough to be included in the above table.
| Growth Funds |
Cumulative $
contributions
(EE,ER,Govt)
|
+ Cum
net gains
after all
tax, fees |
Effective
cum
return |
= Ending
Value
in your
account |
Effective
last 3yr
return %
p.a. |
|||
| Since April 2008 | X | Y | Z | |||||
| to December 2014 |
$
|
% p.a.
|
$
|
|||||
| Grosvenor Balanced Growth | G | G | G | 16,301 | 4,046 | 10.0% | 20,347 | 9.0% |
| BNZ Growth | G | G | G | 6,217 | 1,496 | 10.4% | 7,714 | n/a |
| Generate Growth | G | G | 5,997 | 1,980 | 16.8% | 7,978 | n/a | |
| ------------------- | ||||||||
| Column X is interest.co.nz definition, column Y is Sorted's definition, column Z is Morningstar's definition | ||||||||
| G = Growth, B = Balanced, A = Aggressive | ||||||||
For explanations about how we calculate our 'regular savings returns' and how we classify funds, see here and here.
There are wide variances in returns since April 2008, and even in the past three years, and these should cause investors to review their KiwiSaver accounts, especially if their funds are in the bottom third of the table.
The right fund type for you will depend on your tolerance for risk and importantly on your life stage. You should move only with appropriate advice and for a substantial reason.
Our December reviews of the Conservative & Default funds, Moderate funds and Balanced funds can be found here, here and here.
---------------------------------
* These numbers are the average of the top five funds
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